Insurance Premiums Stay Flat Despite W3B Satellite Failure

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PARIS — Despite a major satellite failure last year resulting in a large claim, space insurance premiums continue to be subject to downward pressure — good news for satellite owners, less good for underwriters — as the major insurers are resolved to stay active in the market amid still-solid profitability, underwriters said.

The most notable insurance event of 2010 was the October loss of the Eutelsat W3B commercial telecommunications satellite following a large leak in its fuel system that developed soon after launch. That claim alone was valued at $311 million.

Some insurance officials said following the W3B loss that insurance premiums would increase. But this apparently has not happened.

One of the biggest space insurers, Alliance Global Corporate and Specialty’s SpaceCo, said it is maintaining its space-insurance line of about $50 million and is determined to remain in the industry and to take part in insuring new risks. These risks include not just new launch vehicles and satellite designs, but also new types of missions such as commercial cargo transfers to the international space station and a novel satellite in-orbit refueling mission being planned by a U.S.-Canadian partnership.

Paris-based SpaceCo booked premium revenue of 35.5 million euros ($50 million) in 2010 for space insurance policies covering satellite launches and in-orbit operations.

Thierry Colliot, managing director of SpaceCo, said the company’s loss ratio was slightly better than the industry average of 40 percent in 2010.

In a May 17 briefing, Colliot said the figures do not include policies covering damage to satellites or rocket hardware on the ground, typically during assembly and prelaunch operations. When these activities are included, SpaceCo’s 2010 revenue was about 40 million euros, he said.

The global space insurance industry booked premiums of about $890 million in 2010 and recorded claims of $351 million, for a 39 percent loss ratio.

Adding up all insurance coverage available on the market, insurers say the industry is capable of placing up to $750 million in coverage on a single launch, including the first year’s operations of the satellites being carried. For a single spacecraft in-orbit policy that figure is perhaps $600 million.

In practice these ceilings are never reached, in part because premiums rise as the smaller underwriters are solicited in the cases when satellite owners seek to round up as much coverage as possible.

Underwriters say assembling a package of launch and satellite insurance for missions involving the two most active commercial rockets — Europe’s Ariane 5 ECA and International Launch Services’ Proton M — can cost as little as 10 percent to 13 percent of the insured amount.

Underwriters say these rates are coming dangerously close to what they call “burning costs,” which refers to the amount of premium revenue they need to collect in order to pay anticipated losses based on the history of claims.

Colliot said that for companies like SpaceCo that are determined to remain major players in the space insurance market, the challenge now is to find pockets of growth in an industry whose core business — insuring commercial telecommunications spacecraft — is mature and growing only slowly.

Some of the largest satellite fleet operators, who present the most attractive risk profiles to underwriters because they closely monitor their rocket and satellite contractors, partially self-insure their satellite launches, as is the case with SES of Luxembourg. Intelsat of Luxembourg and Washington insures its launches but usually does not maintain insurance for a satellite’s performance in orbit after the first year.

Dish Network and EchoStar of Englewood, Colo., the two companies that operate the Dish satellite-television system, in the past have foregone satellite insurance altogether, saying it is less valuable as an investment than a policy of investing in in-orbit backup satellites.

New insurance risks now arriving on underwriters’ desks include the Falcon 9 rocket built by Space Exploration Technologies (SpaceX) of Hawthorne, Calif., and the European version of Russia’s Soyuz rocket, scheduled to begin operations late this year from Europe’s equatorial Guiana Space Center spaceport in French Guiana.

Two major underwriters said both vehicles will have to prove themselves before being assigned premium rates approaching those for Ariane 5 and Proton.

Requesting anonymity because they are in negotiations on policies for both vehicles, the two underwriters said that while the Europeanized Soyuz is nearly identical to the vehicle that has made more than 1,700 liftoffs from Russian launch sites, it is operating with new range-safety procedures, in a new climate after being transported by means that have not demonstrated their reliability.

The Falcon 9, they said, will need to conduct launches of its upgraded main-stage engine and its new, wider payload fairing before insurers are sufficiently comfortable with it to bring rates down.

MDA Corp. of Richmond, British Columbia, and Intelsat have joined forces to promote a satellite in-orbit refueling system developed by MDA from the company’s long space-robotics heritage. Intelsat has agreed to help MDA find U.S. government customers, and to be the anchor customer for the first mission, which would refuel several Intelsat satellites that are otherwise ready for retirement.

Both underwriters applauded the MDA-Intelsat initiative, but said the first mission likely will be forced to pay an insurance premium far in excess of the current rate for standard telecommunications satellites.

 

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